Surge in Mega Projects Begs Question: Why Now?

Amid industry buzz about the benefits of small, easier-to-finance infill projects, several mega-projects still are taking shape. A new $485 million project by Hebrew SeniorLife is under way near Boston. The 162-acre campus will feature 600 units.

In New York, the $282 million Amsterdam at Harborside is now under construction on Long Island. The continuing care complex will include 226 apartments, plus penthouses with entry fees well over $1 million.

Other big projects underway include the Clare at Water Tower in Chicago ($210 million), Skyline at First Hill in Seattle ($214 million), and the recently completed Kahala Nui in Honolulu ($200 million).

Classic Residence by Hyatt boasts big, new projects in Scottsdale and Denver. What’s more, $200 million projects are on the drawing boards in Baltimore, Philadelphia and Los Angeles, sources say.

"There has been an uptick in big projects," confirms John Spooner, executive vice president at Greystone Communities, the Texas-based developer of the Amsterdam project as well as other big continuing care complexes. "We have more huge projects in the pipeline."

Several factors are boosting demand for big projects. As material prices rise, projects are more expensive to build. Developers must add more units to generate enough revenue to sustain operations.

Also, residents are demanding more services. Seniors want multiple dining venues, fitness facilities and entertainment areas. Only a large community can justify lots of amenities.

Resident services have expanded too. Instead of the three standard housing types of independent, assisted and nursing, big new projects offer as many as five options, with the addition of intensive assisted and memory care.

Baltimore-based Erickson Retirement Communities recently received approval for a big new community near St. Louis adjacent to Grant's Farm, home of the Budweiser Clydesdales.

Erickson communities often include as many as 1,500 units and cost about $150 million. The projects are completed in phases, depending on market demand. "We build to this scale because we can offer efficiencies," says David Douglass, senior director of community affairs at Erickson. Big communities also enable Erickson to offer many activities and amenities, he adds.

Lately though, many of the new mega-communities are being developed by non-profit sponsors with access to tax-exempt bond financing. For-profit developers can still tap private equity funds and REITs, but debt financing from traditional lenders, especially in large amounts, is hard to come by.

"Lenders are using conservative [underwriting] requirements," says Mark L. Myers, senior vice president at the Chicago office of brokerage Marcus & Millichap Real Estate Investment Services. Another source says several for-profit developers have put big projects on hold because they couldn't be financed.

"The lending climate has changed," notes Rich Seibert, vice president of corporate marketing at Life Care Services in Des Moines. The for-profit company's big new Sagewood project in Phoenix is being built in phases. Seibert notes it may take as many as 10 lenders to finance a big deal nowadays, compared with just a handful of lenders previously.

Land is another concern. Finding parcels large enough to support a big development near population centers remains a challenge, developers say. On the plus side, land prices have softened, especially in places where real estate prices are depressed such as in Nevada and Florida.

Considering the long lead time needed to build big retirement projects, developers are on the hunt for land. "Economic times are not ideal,” says Spooner of developer Greystone, “but developers want to protect their position for the future."